Proposed Hike in GST Registration Threshold to ₹1 Crore to Ease Small Business Compliance

A workspace with laptops and documents, featuring a graphic representation of an increasing trend and the text 'GST Registration Threshold'.

Issue:
Whether the current Goods and Services Tax (GST) registration threshold for merchants should be revised, based on suggestions from financial sector stakeholders, to reduce compliance burden and align with possible policy changes such as Merchant Discount Rate (MDR) applicability.

Rule:
Under Section 22 of the CGST Act, 2017, a supplier is liable to be registered if the aggregate turnover exceeds ₹40 lakh in a financial year for goods and ₹20 lakh for services, subject to certain exceptions. Registration brings compliance obligations such as return filing, even if no tax is payable.

Application/Analysis:
The Department of Financial Services (DFS) has engaged with banks, RBI, and NPCI to review the GST threshold for merchant registration. Presently, merchants above ₹40 lakh (goods) or ₹20 lakh (services) turnover must register and file returns annually.
Some financial institutions have recommended:

  • Raising the registration threshold to ₹1 crore annual turnover.
  • Applying Merchant Discount Rate (MDR) only to merchants above ₹1 crore turnover.

The rationale given by a finance ministry official is that GST registration, even without tax liability, creates a compliance burden for small businesses. Increasing the threshold could reduce administrative overhead for small traders, aligning with the government’s aim to ease compliance for them. The DFS may also use stakeholder inputs to evaluate an MDR framework for UPI merchant transactions.

Conclusion:
The government is considering increasing the GST registration turnover threshold to ₹1 crore for merchants, which could significantly reduce compliance requirements for small businesses. This proposal, if implemented, would also limit MDR applicability to larger merchants, thus reducing digital transaction costs for small traders.

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